Every year, Americans lose untold billions of dollars to a host of tax scams that range from identity theft to return-preparer fraud. While most of these scams can happen at any time, they tend to be most active during tax season, from January through April 15.
IRS Commissioner John Koskinen urges taxpayers to “use caution when viewing emails, receiving telephone calls, or getting advice on tax issues.” The IRS has a criminal investigation unit that works closely with the Department of Justice to identify and shut down scams, but when there’s money to be made there will always be new criminals ready to take the place of those who are caught. The best defense against these scams is to know what to look for.
Most people know what to do if they believe their identity has been compromised. Notify banks, employers, credit card companies, and credit reporting agencies. But for many, these steps may not be enough. An identity thief who has possession of your Social Security number can also file a fraudulent tax return in your name to claim your refund.
In 2013, the IRS stopped 14.6 million fraudulent returns filed as a result of identity theft. That amounted to about $50 billion in refunds. If you suspect your personal information has been stolen, contact the IRS Identity Protection Unit at 800-908-4490.
Not all identity theft starts with a lost or stolen wallet or hacked credit card information. Sometimes identity thieves get all the information they need voluntarily from their victims.
The IRS reports that in recent years there has been a dramatic increase in phone scams where thieves pose as IRS agents. The scammers can be quite convincing and will usually provide a fake name and an IRS badge number. Some will even spoof the IRS phone number so it appears the call is coming from the IRS.
Scammers posing as IRS agents use threats or promises of sending checks for unclaimed refunds in order to collect personal information, including Social Security numbers. These scams can be quite sophisticated and may include bogus emails and even follow-up phone calls, also faked, from local law enforcement as a means of building credibility.
When victims refuse to cooperate, they are threatened with everything from audits and property seizure to arrest and deportation. In some cases, the scammers will offer to take your credit card or checking account information over the phone in order to settle past-due taxes.
If you get a call from someone claiming to be from the IRS and you have reason to suspect that you don’t owe any money or are due a refund, immediately call the IRS at 800-829-1040. An actual IRS agent will be able to verify whether you have unpaid taxes or are due a refund. If you are certain that the call was part of a scam, you can report it to the Treasury Inspector General for Tax Administration at 800-366-4484.
The IRS typically does not email taxpayers, which is why any email that purports to come from the agency should be treated with the highest degree of suspicion. This includes emails that link to official-looking sites with URLs that appear to be fake. All legitimate IRS websites begin with www.IRS.gov. If you receive an unsolicited email that appears to be from the IRS or a related agency, you can report it by sending it to phishing@IRS.gov.
It can’t be stressed enough that most tax preparers are honest, hardworking professionals. However, there are scammers and hustlers who pose as tax preparers in order to commit fraud. They will sometimes use fliers and posters promising extra-large refunds, advertising special inside knowledge of little-known tax credits and rebates. They often volunteer to come to your home to prepare your taxes. They may also set up shop in temporary storefronts just for tax season. Fake preparers make their money from identity theft and fees collected from victims.
Spotting fake preparers starts with asking for the PTIN (IRS preparer tax identification number) that all legitimate tax preparers must have. Legitimate preparers always sign returns they prepare and include their PTIN. Since more than 99% of all individual returns can be e-filed, fake preparers will often make an excuse as to why yours must be mailed in. They do this so they can file a fraudulent return and collect your refund themselves.
Some tax preparation scammers will offer to “enhance” your return to get you a larger refund. They do this by intentionally adding fake dependents, leaving off income, claiming credits you’re not eligible for, and other fraudulent schemes. They will often base their fee, which they will insist on being paid up front, on the amount of your anticipated refund. It is important to understand that if you file a return with fraudulent information, even if someone else prepared it, you are responsible for it. You can be penalized up to $5,000.
The best way to avoid preparer fraud is to ask for and check references. Verify PTINs, ask about professional licenses, and steer clear of anyone who seems to have set up shop out of nowhere.